By Jonathan Cable
LONDON – Price growth in Germany’s overvalued property market looks set to ease in coming years but affordability will worsen as supply constraints keep values elevated, offsetting a negative impact from tighter monetary policy, a Reuters poll found.
After soaring an estimated 10.0% this year prices will rise 6.0% next year, 4.0% in 2023 and 2.0% in 2024, according to the median estimate of 11 property market experts polled by Reuters Nov. 18-29.
But respondents were unanimous in saying affordability would worsen over the next two to three years.
“The continuing price increase, especially in metropolitan areas, will exclude an increasing proportion of the German population from owner-occupied housing,” said Sebastian Schnejdar at BayernLB.
When asked what would help improve affordability, respondents cited tax deductions, higher wages, a faster building pace and reduced legislation, amongst others.
“To improve affordability, real estate prices would have to come down or wages would have to rise faster than real estate prices,” said Carsten Brzeski at ING.
“Additionally, a decrease in mortgage interest rates would improve affordability.”
Like its peers the European Central Bank cut interest rates to a record low at the height of the coronavirus pandemic and while a separate Reuters poll said it was not expected to increase borrowing costs until at least 2024 it will end its emergency asset purchase programme.
Inflation in the euro zone is well above the Bank’s 2% target and in Germany, Europe’s largest economy, it jumped to 6.0% in November – the highest rate recorded since January 1997, when the EU-harmonised series began – official data showed on Monday.
ECB board member and German economist Isabel Schnabel said earlier this month Bank policy cannot ignore a surge in property prices that has led to a potentially dangerous overvaluation.
Responding to a question on the level of house prices on a scale of 1 to 10 from extremely cheap to extremely expensive, the median response was 8.
“The judgment is two-fold: in metropolitan areas and their suburbs, prices have reached very high levels at 8-9, but rural areas, which continue to regain significance in the eye of remote working, are still more affordable,” said Florian Neumeier at Interhyp.
Market watchers polled were split on what would have the biggest impact on the German housing market next year with seven picking supply constraints and seven selecting higher interest rates or tighter monetary policy. Some selected both.
“The desire for more properties, the smaller household size, etc. continue to generate more demand. Higher interest rates, inflation and tighter monetary policy are curbing demand,” said Peer Hessemer at VON POLL Real Estate.
(Reporting by Jonathan Cable, polling by Mumal Rathore in Bengaluru and Michael Nienaber in Berlin, Editing by Angus MacSwan)